Chips and India

The semiconductor chip industry is now at the heart of geopolitics. America decided to squeeze two of its adversaries wrt access to semiconductor chips – Russia across the spectrum, and China only wrt high-end chips. To try and counter that, Russia smuggles chips from other countries; and China has decided to accelerate its in-country chip industry.

 

As Taiwan gets increasingly in the crosshairs of China, it sets off alarm bells everywhere because the world’s highest-end chip manufacturer is a Taiwanese company named TSMC. Cut off TSMC in the event of a war or siege, and the whole world will be impacted. America has therefore been pressurizing Taiwanese companies to move their chip manufacturing to other countries – US, Japan etc. Most wonder about the cost impact of moving things to a rich country, but here America’s geopolitical interests trump cost considerations.

 

India sees this as an opportunity to take baby steps in the chip manufacturing industry. Job creation aside, chips are rightly seen as a vital component in today’s digitized world – and one cannot be left at America or China’s mercy. And like China, India feels that it needs to prioritize this industry – start at the low end, build up manufacturing and the associated supply chain skills, and eventually we can move on to chip design. This is a long-term play.

 

In India, there’s been a lot of chatter, hype and then a fizzling out on the semiconductor manufacturing front – Vedanta, Foxconn, Tower being just a few such instances. After all those missteps, on 29^th February, it wasn’t just a vague MoU (Memorandum of Understanding), but a far more concrete announcement.

 

Pranay Kotasthane explains why this one could be the real deal. First:

“This time around it is giving incentives on an equal footing even during the facility’s construction phase.”

Second, it is being structured similar to how Maruti (MUL) was launched. Like MUL, the government said it will invest in the venture (putting money is always a sign of seriousness). Like MUL, it has demanded the foreign technical partner invest money too, not just be a technology provider (money ensures the foreign partner is committed and wants this to work). Third, the partners in this venture (beyond the government) are Tata Electronics and Taiwan based PSMC, the world’s 6^th largest chip foundry. That’s specific, not a vague outline of an idea. Fourth, the total investment amount has been announced – ₹91,000 crores. That’s a concrete number, at least to start with. Fifth, with government money invested, it’s a signal that arbitrary taxation or labour changes won’t happen. Sixth, the location has been identified as Dholera in (no surprise) Gujarat.

 

Ok, maybe all that makes this a concrete idea. But is it a good start, analyses Kotasthane. One, this is at the 28 nanometer (nm) node size, which lies at the mid-range of today’s chips. Nowhere near the top end, but then again, one cannot just start at the top. Two, while ₹91,000 crores is huge, it’s still just a tenth of what is needed to construct a foundry for 28 nm node. More money will need to come later. Three, Dholera is in the middle of nowhere. Which is probably why it was selected, but that also means a new township, access, road connectivity, schools, colleges etc will have to be created. Four, for the amount of money involved, it won’t generate that many jobs. Five, semiconductor manufacturing requires a lot of water.

 

On #4 and #5 above, Kotasthane reflects many people’s view that certain sectors are critical to national security – like food, nuclear weapons, space tech, GPS, and increasingly chips. Such sectors are not optional – one cannot be relying on America or China’s goodwill for access to these. Therefore, many feel that India must build its chips sector.